Why Investors Shouldn’t be Too Happy with Nestle’s Gains
Many of the analysts have recommended a sell; Nestle may find it difficult to elbow out competition which came up during the Maggi fiasco
Mumbai: Nestle India has been on a recovery mode on the bourses –– emerging as the top gainer in the BSE FMCG Index in the past one month with gains of 13%. The buying interest has been fuelled by a spate of good news. Maggi noodles passed all safety tests as directed by the Supreme Court. The company’s global CEO stated that its India unit is bouncing back more quickly than expected after the Maggi ban setback.
Maggi noodles is gaining ground and leading the ‘noodles’ category with more than 50% market share. The company has re-launched Maggi vegetable Atta noodles and Maggi Oats Noodles. It has also launched a new range of Greek Yoghurts as an extension of its Nestle a+ dairy brand. These developments, under the leadership of the new Indian head Suresh Narayanan, do increase investor confidence. However, the recovery is not likely to continue in anticipation of an impending turnaround. For one, analysts on the Street are not yet convinced. Data from Bloomberg shows that 42% of the analysts tracking the stock still have a sell recommendation on the company’s stock. Citi, KR Choksey and ICICI Securities have downgraded the stock in the past two weeks. The stock price is still below the pre-controversy le-
STILL AT A LOW
termath of the Maggi fiasco, new players like Patanjali have entered the noodles category.
It will be difficult for Nestle to elbow these out of the market any time soon. It will entail increased spending on advertising and brand building.
Its strategy to launch new products in dairy and chocolate segments to diversify and reduce dependence on Maggi noodles will take some time to bear fruit.
The firm’s fourth quarter numbers, which will be announced on May 12, would provide further direction to the price.
Investors would want to check on the increase in revenues and improvement in margins on a sequential basis.